FY17 net profit 11% above forecasts

UMS Holdings' 4Q17/FY17 revenue at 23%/98% of our full-year forecast was in line with our expectations. 4Q17/FY17 net profit at 34%/111% was ahead of our expectations.

The key reason for the better-than-expected performance was the higher contribution from component sales which yield better margins compared to system integration sales. Component sales accounted for 51.5% of the semiconductor segment’s revenue in 4Q17.

One-off items One-off items that aided profitability in 4Q17 were:

S$1.8m gain on disposal of machinery;

S$1.1m gain from reversal of allowances for inventory obsolescence; and

S$0.5m tax credit.

Offsetting these gains was an exchange loss of S$0.8m due to the depreciation of the US$ against the S$ in 4Q17. Depreciation expenses also fell 12% y-o-y to S$1.0m as more assets became fully-depreciated.

Strong cash flow – dividend track record continues

UMS generated S$59.6m in operating cash flow before working capital changes for FY17. Cash flow from operations was S$39.2m mainly as S$16.7m cash was tied up in inventories due to the commencement of a new parts consignment programme with its major customer.

Capex of S$10.6m in FY17 was part of the previously announced RM80m capex plan to expand the Penang facility.

It declared a DPS of 3Scts for 4Q17, in line with its historical practice.

Diversification opportunity with JEP

On 17 Jan 2018, UMS announced it has purchased a 29.5% stake in SGX-listed JEP Holdings which has a strong track record as a supplier of aerospace components for the world’s leading aircraft manufacturers. If successful in the next few years, JEP could help UMS’s share price re-rate as customer concentration risk will be reduced.

Positive FY18 outlook

On its FY18 outlook, UMS guided that prospects remain bright. The company notes that industry association, SEMI, has projected that global sales of new semiconductor manufacturing equipment will grow 7.5% in 2018. Its key customer is also forecasting double-digit revenue and profit growth in 2018.

UMS is also ready to take on higher volumes from its major customer as it has enlarged its production capacity in Penang.

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